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Estate Planning: Gifts and inheritance for grandchildren require planning
After a decedent's own children, grandchildren are next in line to receive inheritances from a decedent's estate.
Grandchildren usually figure as alternative beneficiaries who inherit only if their parent predeceases their grandparent.
Grandchildren, however, can sometimes be primary beneficiaries, such as when the grandparent raised the grandchild or wants to provide for the grandchild because the grandchild's own parent will not. Regardless gifts to grandchildren require planning.
If the grandchild is a minor then planning is more complicated. Minors cannot receive assets directly in their own name.
Without planning in place a court petition to appoint a guardian is required. The assets are then managed by the guardian for the benefit of the minor. As the guardianship proceedings are costly it makes sense to plan and so avoid them.
If the gift involves a sum of cash that is say less than $50,000 then a Child Uniform Transfer to Minors Act ("CUTMA") account managed by a trusted adult could be used to receive the gift.
Alternatively the same money could be deposited into a College Education Savings Plan (such as a so-called 529 Plan) when the donor's intent is to provide educational assistance.
When the gift to a minor grandchild is sizable, or involves real property, however, a trust is often in order. The trust can manage assets for more than one beneficial grandchild, which reduces total administration costs.
Typically each grandchild begins with an equal separate share which is then adjusted for later distributions and expenses.
Unlike a CUTMA account the trust does not have to terminate once the grandchild reaches 25 years of age. CUTMA accounts make sense for smaller size monetary gifts which don't warrant the expense of a trust.
A trust may continue for the lifetime of the beneficiary; up to ninety (90) years under California law. It may also provide for alternative death beneficiaries in case a primary beneficiary dies before receiving their full distribution.
Most importantly a trust can be drafted to carry out the wishes of the grantor and yet allow the trustee enough discretion to have flexibility to deal with the circumstances.
If the grandchild is an adult at time of distribution then they can receive their gift outright. Nonetheless that may not always be best.
Do they have creditor issues, receive needs based government benefits, can manage the assets involved, or have any substance abuse problems? These are all circumstances when an appropriately drafted trust for the adult grandchild's benefit may be employed.
Unfortunately, some grandchildren become estranged from their grandparents, who may decide to disinherit them.
In those cases, the grandparent's estate planning documents will both expressly disinherit such grandchildren and also provide for other alternative beneficiaries.
No matter what, grandchildren cannot be ignored when doing one's estate planning. By law they are heirs to their grandparent's estate if the grandparent's child has died but the grandparent is survived by the deceased child's own children.
Thus, regardless of whether one is motivated by love and concern or otherwise how to treat one's grandchildren must be addressed.
Dennis A. Fordham, Attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. and 707-263-3235. His Web site is www.DennisFordhamLaw.com .
